Demand Response and Building Decarbonization

Podcast recording with Doug Middleton of Leap

For our most recent podcast recording, we interviewed Doug Middleton, the Head of Business Development at Leap, which is one of the largest aggregators of distributed energy resources (DERs) in the United States. Leap bids the demand response capabilities of DERs into wholesale energy markets as a competitive alternative to expensive (and often filthy) fossil fuel power plants.

Listen to the episode now to hear more from Doug on why every building needs to be electrified, automated and intelligent in order to achieve net zero.

Why Demand Response?

To understand the massive potential for demand response as an energy (and climate) resource, it’s useful to spend some time with the basic structural problem that a decarbonizing grid faces. Since the first power plants came online, supply has always followed demand. We figured out how to ramp our power plants up and down based on how much electricity was needed for the grid. Renewables flip that script. While some clean resources like hydro and nuclear are “always on”, wind and solar are intermittent. For the first time in the modern era, demand needs to follow supply!

The Significance of Intermittency

Intermittency itself is complicated. Sometimes clouds pass between the sun and solar panels, resulting in temporary diminished output. The same problem afflicts windmills. From time to time, the wind just dies down. This type of uncertainty keeps grid operators on their toes and requires various strategies for keeping the grid balanced. Most commonly, one or more gas plants will be kept online to take up the slack for (temporarily) diminished renewable output. Gas plants’ quick ramping capabilities make them ideal for this use case, but also come with high emissions (for this reason, marginal emissions tend to be higher when more renewables are online).

The other form of intermittency is structural. Structural intermittency is a function of the temporal intersection of high demand and low supply. As we know, solar power follows the daylight and wind power follows the wind (which tends to peak overnight as temperature gradients destabilize the lower atmosphere). The more solar on your grid, the cleaner it is during the day. The more wind on your grid, the cleaner it is during overnight hours.

Confounding this supply problem is the fact that demand for energy tends to peak each day just as wind and solar resources reach their lowest combined output. The problem thus becomes where to find energy resources other than gas power plants to fill in the structural gaps in the early morning and early evening hours.

Solving structural intermittency requires figuring out both how to produce more clean energy early in the morning and early in the evening as well as how to systematically reduce energy consumption during those same hours.

How Demand Response Complements Renewables

The premise behind demand response (or “flexibility” as is the term of art these days) is that there are certain uses of electricity that can be reduced or shifted to different times of day. For example, it may be convenient for me to run the dishwasher immediately after dinner, but I could choose to run it just before bed instead. Alternately, I may normally set my air conditioner at 68 degrees, but I could be OK with it at 72 degrees for an hour or two.

Today, most existing demand response programs are voluntary and run through utilities or competitive energy markets. If the former, the utility will figure out when a good time to reduce energy consumption might be and “calls” an event - triggering devices that have enrolled into the program to power down for a bit. If the latter, demand response companies wait for the market price to reach a certain threshold and then bid in their available load-reducing resources.

Utilities think about the value of demand response in terms of “avoided cost”. They mostly call demand response events when things get really bad - such as a pending brownout or blackout event. Most of the time, utilities are perfectly happy with the gas power plant providing power in the early morning and early evening hours, as it tends to be less expensive than demand response. Because pollution isn’t a significant part of the “avoided cost” calculation for a utility, there’s no benefit for them to call on demand response resources instead of fossil fuel power plants under normal conditions. Likewise, in competitive markets, it is quite common for fossil fuel energy resources to provide low-cost power to the grid and keep demand response on the sidelines, even in the hours where renewables are offline.

But the flexibility to reduce consumption when renewables are offline is precisely what we need in order to achieve 24/7 grid decarbonization. Today’s markets don’t provide a price signal for deploying demand response when the grid is merely dirty. It’s only when energy is also expensive that demand response gets called to the table. There are thousands of hours per year in which fossil fuel plants burn and flexible loads sit idle because the price of pollution isn’t part of the cost-benefit analysis.

A Carbon Signal for Demand Response

The ability to dispatch demand response, not just when energy is expensive but also when the grid is dirty, is why we are excited to partner with Leap and other demand response companies to reduce energy consumption when renewables are mostly offline. Structural intermittency is predictable. We know more or less which hours will be powered largely by fossil fuel power plants. We can also calculate the difference between the market rate for electricity and its carbon footprint. Now, companies like Leap can strategically dispatch their demand response resources to reduce carbon emissions.

We look at demand response the same way that we would look at any other form of clean energy production, the same way that FERC 2222 requires these resources to be treated. A measurable reduction in energy consumption relative to a normalized baseline yields a savings value in kWh that can be procured to complement other clean energy purchases.

In renewable heavy grids like California’s, the carbon impact of demand response can be as much as twice as large as the carbon impact of solar procurement and as much as 50% greater than wind procurement.

WattCarbon’s marketplace allows any organization that is trying to reach a net-zero Scope 2 emissions goal to procure demand response the same way that they would buy RECs for wind and solar. Whether as part of a 24/7 CFE initiative or a desire to maximize “emissionality”, demand response resources serve a critical role in a net-zero energy portfolio.

Participating in the Market

Starting this month, WattCarbon is issuing the first Avoided Emissions Certificates (AECs) for demand response participation. Companies like Leap are bidding into wholesale markets at lower clearing prices using the revenue from AEC purchases to make demand response more cost competitive with fossil fuels during evening peak demand periods.

Clean energy buyers will be able to activate demand response on their grid by purchasing a share of AECs being generated by one or more demand response portfolios. Each AEC will represent an hourly kWh of DR savings from within a grid along with the carbon intensity of the grid at that hour. We will be tracking these certificates in accordance with the EnergyTag standard for hourly granular certificates. As a result, buyers will be able to retire and claim certificates the same way that they would any ordinary REC or other GC.

For more information on how to participate as a supplier, please be in touch!